Online Mortgage Quotes - How the Process Really Works

These days, you can get online mortgage quotes from any lender's website -- and usually for free. But what happens after you request a quote? Is the information you receive accurate? Does it represent a commitment from the lender? Or is it just a marketing ploy used to generate leads? You'll find answers to these questions and more below.

(If you're ready to move forward with the application process, use the link provided above. Otherwise, you can continue reading the lesson below and come back to this link when you're ready.)

Quotes, Applications and Other Mortgage Lingo

An online mortgage quote is simply an estimate of what the lender is willing to lend you, and the interest rate they may assign. Sometimes you'll have to complete an application to get a quote. This would be the Uniform Residential Loan Application (Fannie Mae form 1003 / Freddie Mac form 65). Other times, the lender will only ask for some basic information online before giving you a quote. The less they ask for, the less accurate the quote will be.

What it is...

The lender's primary objective is to capture your information via the website. They can't make an actual loan commitment based on information typed into a form. Instead, they simply want to connect with you so they can follow up by phone or email. You fill out a form, they give you a rate quote, and the connection has been made. One of the lender's representatives will then follow up with you, to request additional information.

So the online mortgage quote is really just the start of the application process. It's a way for borrowers to get the ball rolling -- and a way for the lender to get new leads from potential customers. It's a virtual handshake for doing business together.

What it isn't...

The online mortgage quote is not an obligation. A lender can quote you any kind of rate and terms in advance. But that doesn't mean they're obligated to deliver on that offer. In fact, their preliminary offer will probably have a disclaimer somewhere that says, "This is not a commitment to lend. Rates and terms will be based on additional qualifying criteria."

This disclaimer means that your actual interest rate, closing costs and terms may be different from the quoted information, based on the lender's final review. In other words, the initial quote and the final approval are two different things.

In some cases, the lender will quote you an interest rate before they've had a chance to review your qualifications. In other cases, they'll provide this information after they've reviewed your credit score, debt ratios, etc. So the accuracy of a quoted rate will vary, depending on when and how it is issued.

The Rate Lock

You won't know for sure what kind of rate you're getting until you are given the chance to lock in the rate. Here's what the Federal Reserve says about the rate lock, in relation to the online mortgage quote:

Rate Lock, Federal Reserve

The lock-in is also referred to as a rate lock, or a rate commitment. This is when the lender holds a specific interest rate for you, as well as a certain number of points to be paid at closing. Points are a form of prepaid interest you can use to lower your mortgage rate. One point equals one percent of the loan amount, such as $2,500 on a $250,000 mortgage loan.

Different lenders offer the rate lock at different stages in the process. So it will vary. Some will give you a chance to lock the rate shortly after the online mortgage quote, though this is rare. Others will offer it during the underwriting stage, and some wait until the final approval (after underwriting).

So while the individual quote can be helpful for comparison shopping, it generally does not represent a commitment from the lender. The rate-lock offer is a commitment, but that usually comes after the initial quoting process.

Frequently Asked Questions

We get a lot of questions from readers regarding mortgage quotes. Here are the three questions we receive most often:

1. What kind of documents do I need during this process?

It depends on what stage you're in. If you're just gathering information from lenders online, you won't need much documentation. Not yet, anyway. They'll probably just ask you for some basic information about your income, your debts, etc. Based on this, they might give you an online mortgage quote including a maximum amount they're willing to lend. Just remember that this is not a commitment -- not until the lender gives you a rate-lock agreement.

As you get further into the process, you'll need to provide a lot of documentation. Most of these documents relate to your employment, income, assets and debts. You'll have to round up your previous tax returns, bank statements and more. Here's a more complete list of documents needed.

Some borrowers choose to skip the online mortgage quote and go straight into the pre-approval. Getting pre-approved is still not a commitment to lend, but it's much more accurate than the online quoting process. During pre-approval, the lender will request all of the documents we talked about earlier. Based on this, they will tell you how much they are willing to lend. They might offer you a rate-lock at this stage, as well. More about pre-approval

2. Do lenders charge a fee for online quotes?

Not usually. The first fee you encounter is usually the mortgage application fee, which might be refundable or non-refundable. In most cases, you won't have to fill out a complete loan application to get an online mortgage quote -- just some basic information about yourself.

Lenders make it easy for you to request a quote through their websites, because they don't want you to hit the "back" button and go somewhere else. Remember, they want to start a relationship with you. That's the real purpose of the online quote. It's like a virtual handshake during a first meeting.

At some point, however, you will have to complete a Uniform Residential Loan Application. And there's usually a fee that goes along with this. You might have to pay this fee at the time of application, or at closing. It varies from one lender to the next. Some lenders will waive this fee as an extra incentive for borrowers. Otherwise, you'll probably pay between $300 and $400.  

3. Does getting mortgage quotes hurt my credit score?

Not usually. According to FICO, the company that developed the FICO credit score, most credit scores are not affected by multiple inquiries that occur when rate shopping -- if those inquiries are made within a short period of time.

The lender will check your credit score shortly after the online mortgage quote is given. This represents a single inquiry. If you shop around for a better rate from other lenders (highly recommended), you'll end up with several inquiries. But, according to FICO, it won't affect your credit score much if you do it within a short period of time.

How to Get Mortgage Quotes Online

Hopefully by now, you have a much better understanding of the mortgage application process. Knowledge is power! If you feel like you're ready to move forward with the process, you can get start below.

Disclaimer: This article contains general information about loan quotes and lenders. Please note that every lending scenario is different. Procedures may vary from one lender to the next. This article is intended to serve as a basic guide to get getting online quotes. The Home Buying Institute does not offer specific financial advice to individual borrowers.